The EC and expropriation of Microsoft property

I provided in yesterday's blog a series of examples intended to explain why it is weird for government to link an "innovation standard" to the right of property owners to charge for the property that they own. As that blog showed, if that rule was applied more generally, there is a lot of stuff that would no longer be valuable. Worse, value would serve the whim of a government official. Lets hope that person is not a huge fan of Barry Manilow and Tubular Bells.

In the talkbacks, however, some (Yagotta B. Kidding and Tic Swayback, in particular) claimed that the EC was merely objecting to the fact that the now public and documented Intellectual Property was not in itself patentable, and thus, not worthy of the licensing charges that normally accrue to patented material. In other words, "all" the EC did was say that Microsoft's public specifications can't receive the same protections as patented IP.

They have a point. The information Microsoft documented may or may not be patentable (though it is odd that the EC, and not state patent examiners, are the ones making that determination, particularly given that no official EC-wide patent policy has been ratified). That, however, was why Microsoft chose to make it a trade secret in the first place.

The EC has been overruled in past antitrust cases by the Court of First Instance for, essentially, expropriating property and setting prices. This was considered to be "beyond the pale" by the standards of previous members of that court. It is in the EC's interest, therefore, to avoid any whiff of such activity if they aren't to undermine their case (assuming, of course, the Court still feels the way it did previously...as noted, court cases are a spin of a Vegas roulette wheel).

The EC, therefore, chose to force Microsoft to document protocols that were formerly "trade secrets." Trade secrets represent information that might not be worthy of a patent, but are valuable in the sense that they differentiate a company's product from that of another company. Coca Cola's recipe for its popular soft drink and Colonel Sander's secret fried chicken recipe are famous examples. Neither would be worthy of a patent, as its hard to argue that recipes for food are patentable. The solution, therefore, is to keep them secret.

The EC has said that Microsoft is not allowed to keep certain things they deem necessary for interoperability secret. Microsoft, therefore, was required to document these secrets so others could use them in their own products.

Microsoft, however, reasonably assumed that what was previously valuable would still be valuable in future, as it was still Microsoft property even if it was no longer secret. Unfortunately, the EC's indicates that it is their opinion that this now "public" information must be judged by the standards of public information. By stating that Microsoft's IP isn't patent-worthy, they are saying it isn't something that would be protectable public information using the tools with which such well-documented public information is protected and made into property - patent law.

The fact that such technology isn't patentable shouldn't be shocking (though it does make good headlines, such as BetaNews' "EU Threatens to Fine Microsoft for Lack of Innovation"). As noted, Coke's and the good colonel's recipes wouldn't be patentable, either. Those recipes, however, are EXTREMELY valuable. They only become valueless if you are forced to make them public and decide that they must be protectable by the standards of public information.

This, in a nutshell, is my problem with the latest twist in the slow-motion wrestling match the EC has been having with Microsoft. The EC is expropriating Microsoft's property, but is attempting to make it seem like something else by using a two-step process involving a documentation step (of information that was never intended to be released in the first place) followed by the application of standards normally applied to public information so as to determine its "patentability."

This is, at a minimum, highly deceptive, as property for which Microsoft is not allowed to charge a fee is public domain information, not property. If the EC wants to expropriate Microsoft's property, they need to call it by its true name - EXPROPRIATION - and let the Court of First Instance KNOW that that is what they are doing. This game wherein the EC pretends they respect Microsoft's property while, in essence, depriving them of it, has to stop.

Microsoft has a valid business model predicated on the revenue generating potential of proprietary software. Proprietary software makes its money from sale of secrets, most of which would not be "patentable" if released as public information.

If you don't like that approach to revenue generation, you have open source, where there are no secrets, but its harder to generate revenue from sale of software as such.

What is nobody's business - including the ECs - is whether or not Microsoft should have a business model based on proprietary or open source principles. The EC seems intent on helping open source, to the point that it felt it necessary to make explicit mention of those plans in an FAQ relating to its recent ruling:

What is the situation as regards open source?
The Commission has previously stated that it is committed to ensuring that the open source community has access to the non-innovative protocols if the Court of First Instance rules in its favour in case T-201/04 (the action brought by Microsoft against the 2004 Decision). That remains the Commission's position (see IP/05/673).

Open source is good stuff, and I've said as much in past blogs.  Why does it need the European Commission's help to thrive?

Nobody, whether a card-carrying member of the FSF or employees of Microsoft, should want a government to game the system in favor of a competitor just because a group of government bureaucrats believe that competitor represents the "Right Way To Do Things." A government that went after competitors to Fox News, a conservative news channel in the United States, might make fans of that news channel very happy, but few would consider it right for government to do this.

If Microsoft is to turn formerly valuable intellectual property into a valueless asset, then there should be compensation. If the EC isn't willing to pay Microsoft for the expropriation, then Microsoft should be able to derive compensation elsewhere. Licensing for a fee formerly private technology is one way to do it, and makes a lot more market sense than linking a property owner's right to charge for use of property they own to the "innovation" inherent in that property.